This new line of research has introduced some contradictions in DCI; After all, there are many researchers interested in cryptocurrency because it eliminates the need for banks or government financial institutions. But Narula has found a way to bring crypto enthusiasts to the table with central bankers to talk about what Bitcoin can learn from the design of a bank-backed digital currency.
Narula sees DCI as a neutral area. “These worlds are very different, the cryptocurrency world and the central-banking world,” he says “We see ourselves in a bridge-like part.”
It’s not always easy. “There is a real tension,” said Shira Frank, DCI’s strategic adviser.
When Frank first began researching digital currencies, in 2018, he realized that cryptocurrency had become too toxic and worried that the technology might not be salvageable. “It’s going the wrong way,” he recalls.
But Narula told Frank that cryptocurrency still has unnecessary potential and that much of its toxicity stems from its widespread failure to predict the most-negative outcomes in its rapid evolution. Narula says we are now dealing with what we have done through this inadequate plan but we can use what we have learned from crypto errors to create new digital currencies that can better serve people.
Narula says bitcoin research helps her team answer basic questions about CBDC, along with other types of cryptocurrencies. The current monetary system should make it possible to design a CBDC to work for “those who are often the most disadvantaged,” he said. Properly covered, it will withstand a great deal of adverse conditions.
Earlier this year, Project Hamilton unveiled its design for a fast payment processor that could handle 1.7 million transactions per second, apparently paving the way for the introduction of a CBDC in the United States. Then, in March, President Joseph Biden issued an executive order to ramp up CBDC research, a bid to keep America ahead of other countries in the financial technology competition.
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Biden expects a technical assessment of what will be needed to design a CBDC by September, and Project Hamilton will inform that policy. The United States is not the only country leaning towards DCI; Narula says the group has recently started advising other countries about CBDCs. There are still unanswered questions about adopting them, he added.
Norula’s main concern for any new digital currency – be it CBDC or cryptocurrency – is to ensure that it protects user privacy. He sees what is happening with China’s CBDC, which has already been used to handle billions of dollars in transactions. Experts point out that China could eventually link it to the country’s social credit system (which uses citizens’ financial data to gain their trust), warning that it could greatly increase social surveillance in that country and allow the government a new level of control. It may even be able to deny citizens access to their own money in response to their social media posts.
No one knows how everything will turn out. But Narula plans to stay at the DCI office with a bright bitcoin sign to help navigate this new future. “We want to understand the impact of different technology designs,” he says, because ready or not, “money is really changing.”
Ashley Belanger is a freelance science journalist based in Chicago.